I.T Once Set the Trends. Why Does Its Influence Keep Shrinking?

Signing Kris Wu as its spokesperson, taking e-commerce seriously at last, launching cheaper brands and experimental store formats — Hong Kong's I.T Group has been busy. About to turn 30, it wants to catch a new generation of young shoppers.

Sham Kar-wai started out in the 1980s distributing Dr. Martens boots and Levi's jeans in Hong Kong. He has a nose for trends, and he and his I.T Group first built their influence on the time lag between fashion abroad and fashion at home. That advantage is now disappearing.

The name I.T has nothing to do with information technology; it is said to come from the initials of "Income Team." The name has proved half prophetic: last year the company took in HK$8 billion. It owns more than a dozen in-house brands, including izzue, b+ab and AAPE, and carries more than 300 streetwear and designer labels, among them Off-White, Kenzo and Tsumori Chisato.

It was one of the first companies to open multi-brand select shops on the mainland. Today it runs nearly 70 small "i.t" stores (mostly its own brands, plus some mid-priced overseas high-street labels) and nearly 30 large "I.T" stores (mainly designer labels and expensive streetwear). Each store of 1,000 to 2,000 square meters gathers more than a dozen brands under one roof, and I.T Group picks the best sellers out of the mix and gives them stores of their own.

On October 24, I.T Group published its half-year report for the 2017-2018 fiscal year, and it did not look encouraging. Between March and August 2017, total revenue grew 0.2%, to HK$3.65 billion.

There was good news too: net profit for the half year rose 54.7%, to HK$60.4 million.

That profit came mostly from exchange rates and from joint ventures — chiefly a better showing by the Galeries Lafayette department stores. The joint ventures, which include Galeries Lafayette's Beijing store, lost HK$3.89 million last year and made HK$4.11 million this year. The losses had been narrowing for a while, but this is the first time I.T Group has reported Galeries Lafayette in the black. Another HK$5 million or so came from net exchange gains, where the same period last year showed a loss.

Over the half year, the Hong Kong and Macau markets kept shrinking. Mainland sales grew 7.3%, but almost all of that came from new stores: same-store sales rose only 0.9% (against 4.6% in the same period a year earlier). In other words, at stores open more than a year, no more shoppers were walking in.

Measured by same-store sales and by revenue, this was not a satisfying result. During the half year — in early March and again in late August — I.T Group ran two rounds of its "Thanksgiving discount," an annual fixture, and small i.t stores piled buy-three-get-one-free and buy-four-get-one-free offers on top of the markdowns. Even that failed to make people spend more.

From June onward it began making moves. In August, I.T Group had a spokesperson for the first time: Kris Wu. It announced a second mainland Galeries Lafayette, in Shanghai's Lujiazui. In September it relaunched its online store, ITeSHOP, and tried out two "experimental" new retail formats — i.t blue block and zi.ti zi.ti.

From late September until recently, ads for the small i.t brands — b+ab, izzue, 5cm, mini cream and others — have covered major stations on the Shanghai metro.

It is hard not to read this flurry of activity as a response to slowing growth on the mainland. For I.T Group, widening its customer base, especially toward the mass market, has become urgent.

Not long ago it opened a new multi-brand store, zi.ti zi.ti, in Shenyang and Xuzhou, selling goods that cost less on average than the main brands in small i.t. Two new labels billed as "younger" appeared there: GreenishPink and CCAABB. (By our estimate, a hoodie costs 100 to 200 yuan less than one from a core brand like izzue or b+ab.) Chen Huijun, executive director of I.T Group and chief executive of I.T China, said the point was "to bring new brands to customers who used to find our prices high."

Price — what you get for your money — is one of the things shoppers hold against i.t, large and small. In threads on Douban and Smzdm, plenty of people say i.t is "still expensive even after the discount." That can push potential or less loyal customers toward Taobao, or toward fast fashion like Zara, which costs less and follows the runways and fashion weeks closely. Others think I.T's prices are reasonable enough. Sharon, an office worker in Guangzhou, said: "I used to find it very expensive. Its positioning hasn't really changed, but the prices are easier for us to accept now." She thinks average prices elsewhere may simply be rising faster.

Now i.t wants to pull back some of the price-sensitive shoppers it lost, and to reach, earlier, the young ones who cannot yet afford izzue, through new and "friendlier priced" brands. But there is a practical question: once i.t's prices come closer to fast fashion, does it still have an edge?

Moving into lower-tier cities is another way of widening the customer base, and that began around 2011. Over the past two years the push into lower-tier markets has picked up speed.

In the last fiscal year, I.T Group entered Changzhou, Guiyang, Kunming, Jinan, Taiyuan, Nanning and Changchun, among others. In the first half of this year it added Xuzhou. It now sells in 29 cities, and more than 300 of its nearly 600 stores are in Beijing and Shanghai. "Our coverage of the megacities is more or less in place, and we're gradually opening in second-tier provincial capitals. In the future we'll work third- and fourth-tier cities more thoroughly," Chen Huijun told QDaily.

In those places i.t is not unknown. Some shoppers have seen its stores in the prime shopping districts of first-tier cities. Mo Ye, a high school junior in Zhangzhou, Fujian, heard about i.t and its brands from her older sister, and buys there when she travels to Shanghai, Guangzhou or Hong Kong. With Kris Wu, currently very popular, now fronting the brand, opening these new, younger markets may get a little easier.

I.T Group used to pay little attention to e-commerce. That has changed as well.

It launched an official online store and opened on Tmall back in 2012, but at the time it was "only testing the water." In an interview with QDaily, Chen Huijun admitted that much of what it sold on Tmall then was off-season stock, there mainly to clear inventory. "Average spending per customer was low back then. The (online) customers at the time just weren't a good match for i.t," he said.

Fashion retail channels changed long ago. Even proud luxury houses like Gucci, Givenchy and Dior now sell online in China or release exclusive products through social media. Streetwear and fashion sites such as YOHO! and Hypebeast have joined the e-commerce camp in recent years: Hypebeast listed in Hong Kong in 2016, and YOHO!'s sales turnover reached 2 billion yuan last year.

Young shoppers may be spending on their phones and computers the hours they once spent walking through stores. Isabella, who works in Shenzhen, said: "I've hardly been to a physical store in the past year." Lately she shops through the Lane Crawford and Free People apps. She used to visit the large and small I.T stores in Hong Kong.

There is another problem: more shoppers buy directly from overseas, going around "middlemen" like I.T to get the same products from the brands it carries (though I.T still has a channel advantage on certain limited-edition collaborations). The China E-Commerce Research Center forecasts that by 2018 there will be 35.6 million Chinese buying directly from abroad, a market worth 1 trillion yuan.

Under all this pressure, I.T Group could hardly stay calm.

Next to the "testing the water" of five years ago, its e-commerce this year looks like the real thing. It built a logistics center in Kunshan and hired Giovanni Cirillo, who had run e-commerce at both YOOX and Lane Crawford, to head a rebuilt e-commerce division. It has also opened separate Tmall stores for Fingercroxx, Fred Perry, AAPE, :CHOCOLATE and other brands (all of them used to sit under the i.t flagship store on Tmall). Chen Huijun stressed that online and offline prices are now kept the same as far as possible. Since picking e-commerce back up this year, he said, "the momentum is fairly healthy and steady." Whether it holds is another question.

Beyond e-commerce, everyone is talking about new retail. I.T Group has made a few varied attempts of its own — in July, for instance, it opened an i.t blue block in Hangzhou. What most sets this store apart from earlier small i.t shops is an interior designed around customers who want to take photos and post them to Moments and other social media. The store also sells fruit juice, though a clothing brand selling coffee or drinks stopped being novel long ago.

I.T Group has tried more in Hong Kong, where small i.t stores also carry cosmetics from brands like 3ce. In the first half of the year, I.T struck a deal with the Japanese dessert company FLIPPER'S Pancake and brought it to Hong Kong. It recently bought SIFT, a Hong Kong dessert brand with six shops. The two moves inevitably recall Chen Huijun's remark that I.T might put restaurants inside its mainland China stores.

New store design, food and drink: all of it is meant to improve the experience and pull people through the door. After all, except during sales, most small i.t stores are far too quiet next to Zara or Uniqlo.

After it entered the mainland market in 2003, its "Hong Kong trend" and "Japanese trend" styles led young fashion in first-tier cities for a long stretch. In 2008, one Dianping user wrote: "A place I dream about... every time I walk past I have to go in and look around... I've bought so many things there over the years..." But it was around then that some shoppers began criticizing the clothes' design and the service in the stores.

Its first slump came soon after, in 2013: same-store sales in China stalled, net profit fell sharply, and total sales grew more slowly than in any year before. The problems surfaced. It had lost its feel for how trends were moving and had not seen Korean style overtaking the Japanese and Hong Kong looks.

Many people at the time called it "the second Esprit" and expected a quick decline and a wave of closures. After changes inside the company, above all a reshuffle of the small i.t lineup — fewer Japanese brands, more Korean ones — it was back on roughly its old growth path by the next fiscal year. Its "multi-tier, multi-brand, multi-format" retail model and its old strengths, close ties to designer labels and to foreign streetwear brands, kept it competitive.

Faster information and changing channels have weakened I.T's authority in fashion. In the past, because trends arrived in China later than abroad, I.T had time on its side. Many young shoppers went to its stores for an "education in fashion," to find new brands or buy clothes with real design and style. Now Instagram and fashion bloggers tell shoppers what is current the moment it happens. The gap between a niche brand catching on at home, reaching China, and Chinese shoppers ordering it from overseas keeps getting shorter. I.T's role in introducing new labels to its customers has shrunk accordingly.

Competition is sharpening at the same time. When the urge to "buy the most fashionable thing this season" arrives, shoppers have more places to go. Zara, domestic brands like Peacebird, even Taobao-native labels are all "borrowing" the same elements handed down from the top of the fashion pyramid, and shoppers may simply pick whoever moves fastest. I.T Group, by comparison, may be the one now reacting rather than leading.

As it approaches 30, can I.T Group still win the hearts of young shoppers?

Graphics: Feng Xiuxia

Cover image from I.T's WeChat and Weibo accounts